Eicher Motors- The ride to success in motorcycle
December 15, 2021 by Vandana S · 5 min read
About Eicher Motors
Eicher Motors manufactures motorcycles and vehicles for commercial use. Royal Enfield is part of this venture and Sweden’s Volvo truck is its joint partner. It began its journey early in 1948, during the time of Goodearth company’s establishment which specialized in the distribution of imported tractors in India. It was run by Vikran Lal. In the year 1959, the Eicher Tractor Cooperation of India Private Limited in association with Eicher Tractor company based in Germany. This was partly held by Massey Ferguson from the 1970’s period.
From 1965, Eicher India holds all the shares. Soon they expanded into 15 different sectors like footwear, garments, and many other sectors. In 1985 establishment of Eicher Motor was set up in collaboration with Mitsubishi for the manufacture of Light Commercial Vehicles (LCV). These vehicles were sold under the banner name Eicher Mitsubishi.
In early 1990, Eicher Goodearth bought a 26% stake in Royal Enfield India Limited and by 1993 end, they owned a 60% stake. Royal Enfield was a popular brand in India. With its collaboration and introduction of new models, this company soared. Eicher Motors recreated the old bike’s model into a premium model which was a popular favorite.
Siddharth Lal was appointed as the CEO in 2000 at the age of 26 and he became COO in 2004. 13 out of 15 industries owned by Eicher Motors in different sectors were sold under his leadership. They wanted to become the leader in one industry rather than having 15 sectors and not being a market leader in any and continuing to be a mediocre business. In the year 2005, Eicher motors sold its tractor business to TAFE (Tractors and Farm Equipment’s) a company based in Chennai, the Indian partner of Massey Ferguson.
In 2008 Eicher Motors entered a 50-50 partnership with Volvo group for designing VE Commercial Vehicles, assist in the marketing of commercial vehicles, provide design engineering and manufacturing engineering components for the vehicles. In 2020 VCVE bought a 100% stake in Volvo buses operating in India for 100 crores. Currently, VCVE is subdivided into 4 groups of business namely Eicher trucks and business, VE powertrains, Eicher Engineering Components, and Volvo trucks India.
After selling 13 of 15 companies, the financials started looking good for Eicher Motors. Post the sale, Eicher Motor focused its resources towards the manufacturing of bikes and trucks.
The company focused on Bike Industry and the Volvo Industry. Around 80% of profits earned by Eicher Motors is from Royal Enfield. Bikes in India are divided into 3 parts based on CC. There are bikes which are cheaper in rate and they are ranging between 0-250 cc. There are moderate bikes that range between 250-800 cc and there are bikes that are of higher-end and range above 800 ccs. Eicher motor found that there were bike companies selling bikes in the first and third sectors and the middle sector was kept vacant by many. Through Royal Enfield, this sector was taken over by Eicher Motors. The product and distribution sector was improved based on multiple feedbacks given to Siddharth Lal.
On the marketing end, the advertisement of Royal Enfield was created in such a way that it pulled people to build a community of riders. This community was one of the key successes for the growth of sales in bikes. In 2005 the number of bikes sold was 25,000, in 2010, 50,000 bikes were sold, in 2015 3,00,000 bikes were sold and in 2021 7,00,000 bikes were sold. A huge gain in a decade between 2005-2015 was seen.
Over the last 5 years, there has been a steady growth in sales of commercial vehicles and Motorcycles. Motorcycles had a better market than commercial vehicles. Although from 2018 the number of motorcycles sold began to stagger.
One of the main reasons is that in the motorcycle industry Royal Enfield are the market leader for the sector of 250-800 cc bikes. The demand and supply are more or less similar every year. To increase the growth, Eicher Motor can diversify the bike sectors to the higher-end bikes and invest in the sports bike sector and import it to other nations. There is a steady growth in the revenue of Eicher Motors is promising and substantially growing. In the year 2021, it did take a dip, but investors feel it will get back to its niche.
Bharat Emission 6 norms from the year 2020 posed a challenge as most of the trucks manufactured by Eicher Motors did not have this emission control. All the old vehicles had to be shifted to the new norm. The installation of ABS (Anti-Lock Braking System) in all trucks has been made mandatory to prevent vehicles from slipping or skidding off smooth surfaces and has better safety reasons. Because of these 2 updates, expenses in Eicher Motors were relatively higher than in other years.
The performance of Eicher Motor is better than its peers in the stock market. Eicher Motors is placed at 2855 INR whereas Tata Motors is priced at 311 INR and TML- D is priced at 56.80 INR. Although the market capitalization and sales of Tata Motors are more than Eicher motors, the reported profit for 2020-21 is 1315 crores by Eicher Motors and Tata Motors had a negative debt of 13016 crores. The debt to equity of Eicher Motors is 0.01 as compared to Tata motors ich has 2.08 as its debt-equity.
The Promoters own 49.22% of Eicher Motors, FII owns 28.83%, DII owns 9.6% and the public owns close to 12.35 % of the shares.
As a common man, would you invest in this company? Close to 67% traders give a nod for investment. Are in the in 67% lot or are you not in favour of this investment? Do let us know your thoughts.